$8.5 Trillion and Counting
Matt Welch | December 1, 2008, 10:54am
The
L.A. Times on Sunday updated
the numbers on 2008's historic (and historically awful) round of bailouts, and came out with a shiny new figure:
$8.5 trillion. It's a useful piece of journalism, so I almost hate to complain, but the lead-paragraph framing is really annoying:
With its decision last week to pump an additional $1 trillion into the financial crisis, the government eliminated any doubt that the nation is on a wartime footing in the battle to shore up the economy. The strategy now -- and in the coming Obama administration -- is essentially the win-at-any-cost approach previously adopted only to wage a major war.
What a godawful mix of imprecise, played-out metaphors ("wartime footing," "battle," "major war") and couldn't-possibly-be-accurate absolutism ("eliminated any doubt," "win-at-any-cost approach," "only"). As in the inaccurate, propogandistic usage of "rescue" over "bailout," this paragraph conveys the impression that the financial crisis can be likened to a finite, singular goal, one that can be accomplished if only you marshal enough resources. Neither are true. Globalized economies are organisms that evolve constantly, not stationary mountains that can be climbed with enough sherpas. And by definition, not all government interventions into a national economy get you closer to the goal of allaying a capital-C Crisis, particularly when key elements of said Crisis (politicized lending practices, moral hazard caused by federal guarantees, cheap monetary supply, mark-to-market accounting rules) were caused by...government intervention!
Anyway, the rest of
the article is actually about that latter conundrum, which is another reason to read it. Here is a section devoted to sanity:
Once the financial crisis eases, higher interest rates and soaring inflation will be risks. If they materialize, they could dramatically increase the government's borrowing costs to meet its annual debt payments. For consumers, borrowing could become more expensive even as the price of everyday items rise, holding back economic growth.
"We could have a super sub-prime crisis associated with the meltdown of the federal government," warned David Walker, president of the Peter G. Peterson Foundation and former head of the Government Accountability Office.
My only quibble there being with the word "if," since we will have bailout-triggered inflation, mes amis.
And here's a quote that scares me:
"You just throw everything you have at the problem to try to fix it as quickly as you can," said David Stowell, a finance professor at Northwestern University's Kellogg School of Management. "We're mortgaging our future to a certain extent, but we're trying to do things that give us a future."
As the economics journalist Amity Shlaes told Nick Gillespie in a January 2008 interview, such kitchen-sink problem solving, and the uncertainty it creates, certainly prolonged the Great Depression. A selection from that interview:
Both the Hoover and Roosevelt administrations (but especially the Roosevelt administration) were so unpredictable. That hurt the economy very much, and when I went back and saw the extent I was astounded. Uncertainty is a factor that I thought needed to be explored. There were lots of people who said, "I will not invest 'til I know what's going to happen."
During the Depression, you heard the phrase "bold, persistent experimentation" all the time. We've been taught that was good. Somebody had to do something, was what we learned. But what I saw was this enormous cost, especially during the second half of the 1930s.
val | December 1, 2008, 1:40pm | #
Unless you're upside down and can't get a down-payment together.
THEN RENT.
joe, im not sure what you are upset about, yes there are 'unlucky' people in good times and the bad, there are more 'unlucky' people during bad times, but the demographic that has been disproportionately impacted by this are not the unlucky ones, but the stupid and speculators.
Why cant you get a downpayment together? You were able to get one before I assume. Again yes there will be some unlucky ones, who were at the wrong place and the wrong time, that is they were able to get a 5% or 10% downpayment together and bought a modest house within the last year or two, and the recent downturn wiped out their downpayment equity, but are now forced to move for
other reasons. But again they are the exception, the majority of those impacted are the people that bought 500K homes on zero down who had no equity to begin with and now cant find buyers to take over their overpriced debt without taking a loss.
For example I bought my house with over 25% down for approx 235K, the latest valuation placed it at around 220K, which means that if I were forced to sell now I would loose 15K or so, first I don't plan on moving any time soon so I may still recover that loss in the long run, but even if I was forced to move, I would be able to afford the loss, it sucks, but it would not cripple me, because I chose to live, arguably, within my means.
As far as your mom having a hardtime with her investments in the 401K, again you expect the taxpayers to bail her out for poor investment vehicles, that why she has a loving son like you.
joe | December 1, 2008, 1:56pm | #
val,
THEN RENT.
Perhaps you say the same thing to people priced out of homeownership because of regulatory-created scarcity in homes, but I doubt it.
joe, im not sure what you are upset about The effing hypocrisy of people who feign concern about much smaller losses created by the government, who then insist that there is no problem with much larger losses when they might be alleviated by the government. And oh, btw, don't ever, ever say that such people lack compassion.
the demographic that has been disproportionately impacted by this are not the unlucky ones, but the stupid and speculators. The demographic disproportionately impacted by a deep and sustained recession - maybe depression - will be the poor and working class, who are much less likely that average to have a mortgage in the first place.
Why cant you get a downpayment together? Because the economy's in the crapper, and because you had to stroke a check to get out of your last home, and because you don't have the five years it took you to get your last down payment together before you need to move.
You were able to get one before I assume. When the economy was better, and you had more time?
But again they are the exception, the majority of those impacted are the people that bought 500K homes on zero down who had no equity to begin with and now cant find buyers to take over their overpriced debt without taking a loss. You keep ignoring the fact that the economy is in the crapper, and that the collapse has spread beyond the re-fied yuppie flippers.
As far as your mom having a hardtime with her investments in the 401K, again you expect the taxpayers to bail her out for poor investment vehicles Really? Let's make a $100,000 bet. If you can find a comment from me saying...well, saying anything at all about what I want the taxpayers to do, I'll send you $100,000. If not, you send it to me.
Psst: don't take the bet. I didn't write a word about bailing anyone out; I merely made the observation that people are hurting, and gave an example.
What you've done here is demonstrate another variety of thinking backwards - you start with the assumption that the existence of a problems means such and such about policy, you realize you don't like that policy, so you insist that the problem doesn't exist. Well, there is an objective reality out there, whether it includes facts you consider politically inconvenient or not. Start with the facts, then let your political beliefs flow from that.
Reason on Facebook
Reason on Twitter
Reason on YouTube
Reason RSS
